You’ve found the perfect home in the perfect location, but the home is in need of some repairs.

You’re a homeowner who has lived in your current home for several years now and the outdated cabinets and floors are in serious need of a modern update.

Up Next: What Is A Construction Loan?

Instead of wondering how you are going to pay for these updates, consider taking out a renovation loan. These loans are designed to help you fund your project now and pay it off over time so you can enjoy your dream home.home renovation loan

What Types Of Renovation Loans Are Available?

When you come to your lender to get a renovation loan, there are three options available to you here at SmartMortgage:

Conventional Renovation

Conventional renovation loans offer the most flexibility in terms of what renovations you can use it for. You can use it to fund projects that include luxury improvements such as a swimming pool as well as

  • Health and safety
  • Livability
  • Structural repairs
  • Luxury items

Here, funds are disbursed in draws after a third-party inspector approves each phase of the work, so be sure you have a clear renovation plan available.

FHA 203(k)

FHA 203 (k) renovation loans are available for those homeowners or buyers who need the flexibility of a low down payment for larger, more complex projects:

  • Health and safety
  • Livability
  • Structural repairs

This loan backed by the government, which protects lenders from defaults and makes it easier for you to get a loan with a lower interest rate.

FHA 203(k) Limited

Need a loan for a smaller, quick project? A FHA 203(k) Limited is available to make health and safety, and livability updates to your home.

All three of these renovation loans can have a minimum down payment as low as 3-3.5%.

Alternatively, you could also take out a personal loan, cash-out mortgage refinance, home equity loan, or a HELOC. Know that these all come with their own pros and cons so be sure to discuss your options carefully with your lender and financial advisor.

Are There Restrictions To Be Aware Of?

Restrictions you may come across when applying for a renovation loan include:

  • What you can and cannot use the loan for
  • The type of property being renovated
  • If you need a HUD consultant
  • How and when the money can be used

You must also be aware that within 30 days of closing the loan, work on the project must begin, it cannot stop for more than 30 consecutive calendar days, and the project must be completed within six months. You must also provide updates on the project every 30 days.

Like all other loans, renovation loans are subject to approval and you will need to provide a cost breakdown of the renovation.

How Much Of A Loan Can I Get?

The amount you will be able to borrow depends on an appraiser’s estimate of what your property will be worth once the renovations are completed. Other factors depend on your credit score, how much you want to borrow, and what aspects of the home you want to change.

If you only need to do minor, cosmetic updates to the home, you may want to hold off on a construction loan since the project may not justify the cost. Instead, look for easy home improvements such as updating lighting and cleaning up the landscaping.

Need Help Getting Approved For A Renovation Loan?

SmartMortgage Can Help!

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.